Netflix Profit Could Plunge Amid Password-Sharing Crackdown

Netflix Inc. (NFLX), the largest streaming platform by subscribers, will likely say first-quarter net income dropped by almost a fifth from a year ago amid a crackdown on password sharing.

The streaming giant's net income probably fell about 19% to $1.3 billion, or $2.88 per share, from $3.53 a share, according to estimates from Visible Alpha. Revenue probably rose 4% to a record $8.2 billion. The company reports financial results after the close on April 18.

The profit slump underscores challenges Netflix faces when multiple households share the same login information without paying for additional subscriptions. The company said in February that 100 million households shared accounts, representing about 43% of its global paid memberships that month. Netflix has issued guidelines prohibiting certain types of sharing in select markets around the world and is offering to add users to an existing plan for an added fee.

Netflix shares are down 1% in the last year, compared with a 14% drop for the benchmark S&P 500 Communication Services Sector Index.

Ad-Supported Vs. Ad-Free Subscriptions

The quarter marks the first full period since Netflix launched its reduced-price, ad-supported subscription plan in November, a model available in the U.S., U.K., Canada, Japan, Germany, and several other markets throughout the world. That probably helped it add 3.2 million ad-supported global subscribers in the quarter, offsetting the 1.9 million global subscribers it lost for its higher-priced ad-free.

Growth in Low-Penetration Markets

Netflix's penetration of the U.S. and Canadian market has hovered in the low 60% range for more than four years. To boost revenue, it may need to achieve growth in other large markets that have historically low penetration rates. In Latin America, it has a rate of mid-40%, and it's been mired at about 30% for more than a year in Western Europe, and it's even lower in Japan, at no higher than 17%.